FIRST FAMILY MORTGAGE CORPORATION OF FLORIDA, PLAINTIFF-APPELLANT, v. LINDA A. DURHAM AND MR. LINDA DURHAM, DEFENDANTS, AND ATTORNEY GENERAL OF NEW JERSEY, INTERVENOR-RESPONDENT.
Supreme Court of New Jersey
Argued October 7, 1986—Decided August 4, 1987.
108 N.J. 277 | 528 A.2d 1288
Harry Z. Haushalter, Deputy Attorney General, argued the cause for respondent (W. Cary Edwards, Attorney General of New Jersey, attorney; James J. Ciancia, Assistant Attorney General, of counsel).
The opinion of the Court was delivered by
GARIBALDI, J.
The sole issue in this case is whether the Corporation Business Activities Reporting Act (the Reporting Act),
Plaintiff, First Family Mortgage Corporation of Florida, a Florida Corporation whose principal place of business is in Illinois, violated the Reporting Act by failing to file a Notice of Business Activities Report (Activities Report) as required by
We now sustain the constitutionality of
I
Plaintiff invests in and services mortgages guaranteed by the Veteran‘s Administration and Farmer‘s Home Administration, and acts as a servicing custodian for Government National Mortgage Association (GNMA) loans. Plaintiff does not have a certificate of authority to do business in this state, does not file a New Jersey corporation business tax return or a New Jersey corporation income tax return, and has no officers, employees, or representatives in New Jersey. While plaintiff does not
On July 24, 1980, plaintiff acquired fifty-four GNMA home mortgages secured by New Jersey real estate from Midstate Mortgage and Service Company, an Illinois corporation. Defendants, Mrs. and Mr. Linda A. Durham, were the mortgagors on one of these mortgages. On January 1, 1983, defendants defaulted on their monthly payment to plaintiff. Plaintiff‘s representatives communicated with defendants by mail and telephone in an attempt to collect on the delinquent account. When these efforts failed, plaintiff instituted a mortgage foreclosure action in the Chancery Division.
The trial court dismissed plaintiff‘s action because plaintiff had failed to comply with the Reporting Act. The court based its ruling on Associates Consumer Discount Co. v. Bozzarello, 149 N.J.Super. 358 (App.Div.1977), which upheld the constitutionality of the Act. Nonetheless, the court opined that the Reporting Act, as applied to plaintiff, violated the commerce clause. This view was based upon the court‘s interpretation of Allenberg Cotton Co., Inc. v. Pittman, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195 (1974), and related Supreme Court decisions holding that a state cannot require a foreign corporation engaged solely in interstate commerce to obtain a license to do business within that state.
The Appellate Division affirmed, distinguishing this case from the licensing cases on the ground that the Reporting Act, unlike the typical licensing statute, “does not expose foreign corporations engaged solely in interstate commerce to lawsuits in this state. It merely requires that foreign corporations receiving substantial annual payments from New Jersey residents file information that will enable New Jersey to determine whether they are exempt from taxation.” 205 N.J.Super. at 255. The court also rejected plaintiff‘s argument that the Reporting Act violates the supremacy clause by undermining
II
Every foreign corporation which during any calendar or fiscal accounting year ending after December 31, 1973, carried on any activity or owned or maintained any property in this State, unless specifically exempted under sеction 3 of this act, shall be required to file a notice of business activities report, as hereinafter provided.
Activities or property maintenance in this State which require corporations to file this report are:
* * * * * * * *
e. receiving payments from persons residing in this State, or businesses located in this State, aggregating in excess of $25,000 regardless of any other connections with this State;
* * * * * * * *
Every foreign corporation subject to the Reporting Act must file an Activities Report with the Director of the Division of Taxation of the State of New Jersey, on or before the fifteenth day of the fourth month after the close of the corporation‘s calendar or fiscal accounting year.
a. No foreign corporation carrying on any activity or owning or maintaining any property in this State which has not obtained a certificate of authority to do business in this State and disclaims liability for the corporation business tax and the corporation income tax shall maintain any action or proceeding in any State or Federal court in New Jersey, until such corporation shall have filed a timely notice of business activities report.
b. The failure of a foreign corporation to file a timely report shall prevent the use of the courts in this State for all contracts executed and all causes of action that arose at any time prior to the end of the last accounting period for which the corporation failed to file a required timely report.
However, a court may excuse a corporation‘s failure to file an Activities Report
where the court finds the corporation has sustained the burden of establishing that
(1) the failure to file a timely report was done in ignorance of the requirement to file, such ignorance was reasonable in all circumstances;
(2) all taxes, interest and civil penalties due the State for all periods have been paid, or provided for by adequate security or bond approved by the director, before the suit may proceed. [
N.J.S.A. 14A:13-20c .]
The Reporting Act was recommended in the Report of the New Jersey Tax Policy Committee, Vol. V, at 32-34 (Report) submitted to Governor William T. Cahill on February 23, 1972. The Report recommended that New Jersey do as many other states had done, “by adding to their corporate franchise taxes, or by substituting for them, an income tax levied, not on the privilege, or the doing of business in the State, but on income derived from sources within the State.” Id. at 20. It explained that “equity demands business carrying on activities in the State and exploiting the New Jersey market make some contribution to the costs of maintaining governmental operations and the services provided by the State....” Id. at 22. The Report
[I]t is important, in order to safeguard the State‘s revenues and reduce unfair taxfree competition with businesses that pay taxes to this State, that the Legislature adopt a more effective technique for discovering foreign corporations that may be taxable, but that are now paying no taxes, and would otherwise escape the broadened jurisdiction of the proposed second tier tax. To seek to accomplish that objective, we propose that a statutory provision be adopted requiring certain non-qualified foreign corporations to file with the Division of Taxation a Notice of Business Activities. [Report, supra, at 33].
Moreover, the Report specifically stated the reason for
It would also aрpear desirable, in order to establish a simple, objective quantitative test for the filing of the Notice to require any foreign corporation that receives payments from persons residing in the State, or business located in the State, aggregating a minimum dollar amount to be designated by the statute, to file the Notice, regardless of any other connections with the State. [Report, supra, at 34].
The Legislature adopted the Tax Policy Committee‘s recommendations and enacted the Reporting Act, in conjunction with the Corporation Income Tax Act (the Income Tax), making both Acts effective on June 7, 1973. As part of the Reporting Act, the Legislature adopted
III
The commerce clause of the United States Constitution, although phrased as an affirmative grant of power to Congress to regulate foreign and interstate commerce, is “a self-executing limitation on the power of the States to enact laws imposing substantial burdens on such commerce.” South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 87, 104 S.Ct. 2237, 2240, 81 L.Ed.2d 71, 76 (1984). This limitation, however, is not absolute. States “retain authority under their general police powers to regulate matters of ‘legitimate local concern,’ even though interstate commerce may be affected.” Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 36, 100 S.Ct. 2009, 2015, 64 L.Ed.2d 702, 711 (1980).
In general, a “[s]tate regulation affecting commerce will be upheld if (a) the regulation is rationally related to a legitimate state end, and (b) the regulatory burden imposed on interstate commerce, and any discrimination against it, are outweighed by the state interest in enforcing the regulation.” L. Tribe, American Constitutional Law § 6-5 at 326 (1978). As stated by the Court in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174, 178 (1970):
Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. Huron Cement Co. v. Detroit, 362 U.S. 440, 443 [80 S.Ct. 813, 816, 4 L.Ed.2d 852 (1960)]. If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the
burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities. [citation omitted]
Notwithstanding this general rule, a statute will be held per se invalid if its sole purpose is economic protectionism: “where simple economic protectionism is effected by state legislation, a virtual per se rule of invalidity has been erected.” Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 2535, 57 L.Ed.2d 475, 481 (1978). The purpose of the Reporting Act is to achieve a substantial and legitimate state interest, not tо encourage simple economic protectionism of local businesses at the expense of interstate commerce. The history of the Act conclusively establishes that it was enacted to
enable the Division of Taxation to obtain pertinent data from any foreign corporation which carries on an activity or runs or maintains property in this State but which has not obtained a certificate of authority to do business in New Jersey, to the end that a proper determination may be made as to whether such corporation is subject to any State tax. [Avco Fin. Servs. Consumer Discount Co. One, Inc. v. Director, Div. of Taxation, supra, 100 N.J. at 33 (quoting Associates Consumer Discount Co. v. Bozzarello, supra, 149 N.J.Super. at 362).]5
Plaintiff contends that the Supreme Court has created a second exception to the balancing rule in a series of decisions that invalidated state statutes that imposed licensing requirements on foreign corporations engaged solely in interstate commerce.6 Plaintiff argues that the Reporting Act is an
It is true that the Supreme Court has held that forced licensure statutes violate the Commerce Clause. See Allenberg Cotton Co. v. Pittman, supra, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195 (statute withheld access to courts from foreign corporations doing business within the state without certificates of authority); Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 291, 293, 42 S.Ct. 106, 108, 109, 66 L.Ed. 239, 244, 245 (1921) (a state cannot by statute “impose burdensome conditions” on interstate commerce; a “corporation of one state may go into another, without obtaining the leave or license of the latter, for all the legitimate purposes of such commerce“); Sioux Remedy Co. v. Cope, 235 U.S. 197, 35 S.Ct. 57, 59 L.Ed. 193 (1914) (statute withheld access to courts from foreign corporations doing business in the state until it filed its Articles of Incorporation with the state and appointed a resident upon whom service of process could be served); International Textbook Co. v. Pigg, 217 U.S. 91, 30 S.Ct. 481, 54 L.Ed. 678 (1910) (state could not require foreign corporation to file a “complete detailed statement of the condition of such corporation” including information about its officers, directors, managers, assets, liabilities, and capital stock).
Nonetheless, a close analysis of those forced licensure cases discloses that in each of the cases the Court found that the qualification statute imposed unreasonable conditions on the foreign corporation‘s right to sue in a state court. As we stated in Materials Research Corp. v. Metron, Inc., 64 N.J. 74, 79 (1973):
the law has long been settled that a state may not impose a qualification statute which unduly burdens interstate commerce, Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S.Ct. 106, 66 L.Ed. 239 (1921); see, e.g., International Textbook Co. v. Pigg, 217 U.S. 91, 30 S.Ct. 481, 54 L.Ed. 678 (1910); Sioux Remedy Co. v. Cope, 235 U.S. 197, 35 S.Ct. 57, 59 L.Ed. 193 (1914). [(emphasis added.)]
An analysis of the Reporting Act shows how it differs from licensing statutes and discloses that it does not unduly burden interstate commerce. First, the Reporting Act does not require every foreign corporation doing business in New Jersey to file an Activities Report. Instead, the reporting requirement is carefully limited to those corporations that satisfy any of the conditions cited in
Moreover, the burden imposed on a foreign corporation by the Reporting Act is minimal. Unlike a licensing statute, the Reporting Act does not require a foreign corporation to obtain permission from the state prior to doing business here. The Act does not force foreign corporations to secure a certificate of authority to do business or any other license in New Jersey. Moreover, licensing statutes generally require corporations to submit to in-state service of process. L. Tribe, supra, § 6-13 at 342; see, e.g.,
The information required by the Activities Report is easily accessible to the corporation. The Report form merely asks a corporation to provide identification information (name, address, place of incorporation, etc.), and then asks whether the
Furthermore, compliance with the Reporting Act does not subject a foreign corporation to any tax liability or result in any other consequences. Rather, the notice requirement is merely an information gathering tool that permits the Division of Taxation to initiate an investigation to determine whether the foreign corporation having commercial contacts with the state may be liable for the constitutionally valid New Jersey Second Tier Income Tax.7 Without the benefit of the information contained in the Activities Report, the Director would find it almost impossible to determine which foreign corporations are doing business in New Jersey and which are liable under the Second Tier Income Tax Act. The Director would be greatly dependent on voluntary compliance with the Tax Act. This would deprive the state of revenue, be unfair to those corporations that comply voluntarily, and give an unfair advantage to those corporations that avoid the tax. Therefore, we hold that it is constitutional for New Jersey to require foreign corporations that satisfy the conditions in
IV
This holding, however, does not end our inquiry because the Reporting Act also imposes an important sanction for noncompliance. Failure to file an Activities Report prevents a corporation from using New Jersey courts to pursue any cause of action arising “at any time prior to the end of the last accounting period for which the corporation failed to file a required timely report.”
The concurring and dissenting opinion of Wilentz, C.J., would have us uphold
Applying a balancing test, we find that the state‘s interest in maintaining compliance with the Reporting Act is insufficient to justify the burden placed on interstate commerce by
However, the unconstitutionality of the enforcement provision as written does not require us to invalidate the entire Reporting Act or leave the Reporting Act without any enforcement provision. Where part of a statute is unconstitutional, “a court has the power to engage in ‘judicial surgery’ and through appropriate construction restore the statute to health.” Town Tobacconist v. Kimmelman, 94 N.J. 85, 104 (1983) (citing New Jersey Chamber of Commerce v. New Jersey Election Law Enforcement Comm‘n, 82 N.J. 57, 75 (1980)); Borough of Collingswood v. Ringgold, 66 N.J. 350, 357 (1975), app. dism., 426 U.S. 901, 96 S.Ct. 2220, 48 L.Ed.2d 826 (1976); State v. DeSantis, 65 N.J. 462, 472-73 (1974)). The relevant issue in each case is whether the Legislature would want the statute to survive. New Jersey Chamber of Commerce v. New Jersey Election Law Enforcement Comm‘n, supra, 82 N.J. at 75. This inquiry does not turn “simply upon whether the statute, if adjusted to the constitutional demand, will cover more or less than its terms purport to cover [T]he sounder course is to consider what is involved and to decide from the sense of the situation whether the Legislature would want the statute to succumb.” Id. (quoting Schmoll v. Creecy, 54 N.J. 194, 202 (1969)).
We believe that the state‘s interest in enforcing the Reporting Act is adequately served by a provision that prohibits a
Accordingly, we conclude that to preserve the constitutionality of
V
Defendants also assert that the Reporting Act violates the supremacy clause because it frustrates the goals of the National Housing Act,
A state statute violates the supremacy clause
(1) where “Congress has either explicitly or implicitly declared that the states are prohibited from regulating” in this area, Ray v. Atlantic Richfield Co., 435 U.S. 151, 157, 98 S.Ct. 988, 994, 55 L.Ed.2d 179 (1978) or (2) where a state statute “actually conflicts with a valid federal statute.” Id. at 158, 98 S.Ct. at 994. [McGlynn v. N.J. Public Broadcast Auth., 88 N.J. 112, 137 (1981).]
Since defеndants have not alleged that Congress has prohibited the states from regulating in this area, we must consider only
The test for determining whether actual conflict exists is “whether, under the circumstances of [a] particular case, [the state‘s] law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941), quoted in Jones v. Rath Packing Co., 430 U.S. 519, 526, 97 S.Ct. 1305, 1310, 51 L.Ed.2d 604 (1977). [McGlynn v. N.J. Public Broadcast Auth., supra, 88 N.J. at 137.]
The purpose of the National Housing Act is “to establish secondary market facilities for home mortgages,”
As modified, we affirm the judgment of the Appellate Division.
WILENTZ, C.J., concurring and dissenting.
In Avco Financial Services Consumer Discount Co. One v. Director, Division of Taxation, 100 N.J. 27 (1985), we upheld this State‘s constitutional power to tax foreign corporations that derive income from sources within New Jersey. Today, the Court effectively deprives state officials of their most important means of assuring that the taxes which we said in Avco cаn be imposed in fact will be imposed. In the name of interstate commerce, the plurality has drained all effectiveness out of the Corporation Business Activities Reporting Act, reducing that statute to a supplication. Unable to agree that this anomalous result is consistent with the underlying purposes
I.
The plurality opinion correctly frames the threshold doctrinal inquiry: whether the Reporting Act amounts to a per se violation of the commerce clause or whether it is to be judged under the balancing test laid down by the United States Supreme Court for state regulations having a legitimate nondiscriminatory purpose. See Coons v. American Honda Motor Co., 94 N.J. 307, 316-17 (1983), cert. den., 469 U.S. 1123, 105 S.Ct. 808, 83 L.Ed.2d 800 (1985). And the plurality opinion correctly decides that the more accommodating balancing test applies. As explained infra at 300-308, I disagree with the plurality‘s application of that test to the statute challenged here. But before entering into that discussion, I want to spell out my reasons, which are somewhat different from the plurality‘s, for concluding that the balancing test should apply, that is, for concluding that a state‘s closing of its courthouse doors to a foreign corporation that refuses to comply with its legitimate regulations does not automatically transgress the dormant commerce clause.
At the heart of the dormant commerce clause lies a deep-seated concern ovеr states adopting policies of economic protectionism—policies designed to enhance the welfare of one state‘s own economy at the expense of the economies of other states. The Supreme Court has translated this concern into law by reading into Congress’ power to regulate interstate commerce, conferred by Article I, Section 8, Clause 3 of the Constitution, an exclusive power in certain matters off-limits to state encroachment, at least without congressional authorization. In giving a strong voice to this silent prohibition, the Court has recognized that the nation‘s political unity and economic pros-
This anti-discrimination or anti-protectionism principle not only justifies the Court‘s exercise of its power to invalidate state legislation affecting interstate commerce but also, in large measure, circumscribes that power. “[N]ot every exercise of state authority imposing some burden on the free flow of commerce is invalid.” Hunt v. Washington State Apple Advertising Comm‘n, 432 U.S. 333, 349, 97 S.Ct. 2434, 2445, 53 L.Ed.2d 383 (1977). Nondiscriminatory state regulations that advance some legitimate local interest have generally been sustained. Regan, supra, 84 Mich.L.Rev. at 1092; Smith, supra, 74 Calif.L.Rev. at 1204. Thus, whereas state legislation motivated by “simple economic protectionism” is subject to “a virtually per se rule of invalidity,” City of Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 2535, 57 L.Ed.2d 475, 481 (1978), “[w]here the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits,” Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174, 178 (1970).
No contention has been, or could be, made in this case that the statute challenged by plaintiff is motivated by “economic protectionism.” It is true that the Reporting Act has the effect of benefiting in-state economic actors and disadvantaging out-of-state corporations. But this is not the reason for its existence. Rather, in adopting the Reporting Act the Legislature
Moreover, the Reporting Act does not discriminate between domestic and foreign corporations. Domestic corporations are also required to file tax returns providing information about their business activities subject to taxation, see
Against this backdrop, the Supreme Court cases most relevant in this case, the so-called “forced-licensure” decisions, have been viewed as somewhat puzzling, for they apply a per se rule of invalidity even though no state protectionism or discrimination appears to be involved. See Regan, supra, 84 Mich.L.Rev. at 1182, 1188-89. This line of cases invalidates state qualification statutes that force foreign corporations engaged in intеr-
The plurality distinguishes the forced-licensure decisions on the basis of various factual differences tending to minimize the Reporting Act‘s burden in comparison to that of the invalidated qualification statutes. But the plurality does not satisfactorily explain the relevance or importance of these distinctions, nor answer the dissenting opinion‘s contention that the damning feature of the forced-licensure statutes is their sanction barring a foreign corporation from enforcing contracts made in interstate commerce. This latter defect is particularly surprising given the plurality‘s subsequent strong emphasis, in the part of its opinion applying the balancing test, on the severity of the Act‘s door-closing sanction.
Were our task strictly one of determining how to achieve literal conformance to the Supreme Court‘s statements—as distinguished from its holdings—on this subject, I might agree with the dissenting opinion‘s conclusion that the per se rule applies here. Undeniably, the Court‘s forced-licensure opinions contain language strongly suggesting that states must keep open their courthouse doors to those seeking to enforce interstate contracts.2 Absent a clear holding to this effect, how
In circumstances such as these, we should ask whether there is an alternative interpretation of the case law that satisfies our obligation as an inferior tribunal on federal questions without sacrificing our convictions about what the Constitution means. I believe such an interpretation exists in this case.
In my view, the Supreme Court‘s forced-licensure decisions are properly read as focusing not on the severity of the door-closing sanction but on the illegitimacy of the underlying regulation to which the sanction attaches. The constitutional defect in the qualification statutes—and the key distinguishing factor between those statutes and the Reporting Act—is that the regulatory end they sought to achieve was invalid. By the time of these decisions, the principle had already been well-established that a state cannоt require a foreign corporation to take out a doing-business license when in fact that corporation was not doing business in the state but was engaged solely in interstate commerce. See, e.g., Crutcher v. Kentucky, 141 U.S. 47, 58, 11 S. Ct. 851, 854, 35 L. Ed. 649, 652 (1891) (vacating criminal conviction imposed on agent of interstate corporation for failure to register before doing business in state). When
This view of the forced-licensure cases was advanced by the majority opinion of this Court in Coons v. American Honda Motor Co., supra, 94 N.J. 307. In Coons this Court invalidated a provision tolling the statute of limitations in actions against foreign corporations engaged solely in interstate commerce that had not obtained a certificate to do business in New Jersey. We quite properly declined to attach talismanic significance to the door-closing sanction involved in the Pigg line of cases. Those cases, we said, “focused on the importance of leaving interstate commerce unfettered. As applied to this case that principle gives rise to the question whether the deniаl of the statute of limitations defense to unlicensed foreign corporations impermissibly—even though indirectly—forces those corporations to obtain a license to do business in the state.” Id. at 318 (emphasis added). It was this impermissible regulatory objective, not the sanction, that triggered the condemnation of the dormant commerce clause. “The legislature cannot accomplish indirectly that which it could not do directly....” Id.
That the Supreme Court does not view application of a door-closing sanction against a foreign corporation to be a per se burden on interstate commerce is made clear by its decisions in Eli-Lilly & Co. v. Sav-On-Drugs, Inc., 366 U.S. 276, 81 S. Ct. 1316, 6 L. Ed. 2d 288 (1961), and Union Brokerage Co. v. Jensen, 322 U.S. 202, 64 S. Ct. 967, 88 L. Ed. 1227 (1944). In those
Why is it impermissible—more specifically, why is it a violation of the commerce clause—for a state to force a foreign corporation exclusively engaged in interstate commerce to qualify to do business in the state? As previously mentioned, such qualification statutes do not necessarily discriminate in favor of the state‘s own corporations. The cases themselves do not provide a clear answer, but one commentator has offered a plausible explanation: the statutes condemned in Allenberg Cotton and its predecessors disadvantage interstate commerce “as such.” That is, “a proliferation of qualification-to-do business requirements applied to firms with minimal local contacts could have the effect ... of disadvantaging interstate commerce just because such commerce straddles political boundaries.” Regan, supra, 84 Mich.L.Rev. at 1189. Corporations should not, merely by virtue of engaging in interstate com
New Jersey‘s Reporting Act has no such effect. “[W]e have not here a case of [a] foreign corporation merely coming into [New Jersey] to contribute to or to conclude a unitary interstate transaction, nor of the State‘s withholding ‘the right to sue even in a single instance until the corporation renders itself amenable to suit in all the courts of the State by whosoever chooses to sue it there.‘” Union Brokerage Co. v. Jensen, supra, 322 U.S. at 211, 64 S. Ct. at 973, 88 L. Ed. at 1233 (citations omitted). While not localizing its activities in New Jersey to such an extent that it could be said to be doing business here, the typical foreign corporation subject to the Act will have voluntarily structured its activities in such a way as to be subject to taxation under CITA.4 The Reporting Act does not disadvantage interstate commerce “as such.” Unlike the qualification statutes, it does not “accomplish indirectly that which it could not do directly;” its regulatory objective is totally permissible. Accordingly, the per se rule of invalidity created in the forced-licensure cases does not apply. The fact
II.
In the portion of its opinion declaring the inapplicability of the per se rule, the plurality acknowledges that without the Reporting Act, the Director “would find it almost impossible” to determine which corporations were subject to CITA; that compliance with CITA would become largely voluntary; and that such a result “would deprive the state of revenue, be unfair to those corporations that comply voluntarily, and give an unfair advantage to these corporations that avoid the tax.” Ante at 288.
Yet it is precisely this calamitous state of affairs that the plurality has brought on as a result of its application of the balancing test. The plurality‘s “modification” of the Reporting Act—allowing a corporation to proceed with its cause of action so long as it files an Activities Report and satisfies the conditions of
The plurality advances two reasons in support of its conclusion that the state interest in assuring compliance with the Reporting Act is insufficient to justify the burden placed on interstate commerce by the door-closing sanction. First, “the penalty (the value of the lost cause of action) may be complete
The claim that “the penalty ... may be disproportionate to any tax that might be due” is unconvincing for several reasons. First, this claim mistakenly assumes that what is being penalized is the failure to pay tax. That is not true; what is being penalized is the failure to comply with the statute, i.e., to file a Business Activities Report. Thus, each violator has committed precisely the same offense, and it is erroneous for the plurality to assume that the amount of unpaid taxes should influence the question of “proportionality.”
This is not to deny that there is still a measure of disproportionality caused by the fact that the values of causes of action vary. The plurality neglects to point out, however, that the Act does make one important attempt to fit the penalty to the offense. The Act excuses noncompliance at the time of suit if the foreign corporation subsequently complies and if the initial failure to file “was done in ignorance of the requirement to file, [and] such ignorance was reasonable in all circumstances.”
The only substantive change effected by the plurality‘s rewriting of the Act‘s enforcement mechanism, therefore, is to give willful violators the same opportunity as non-willful violators to avoid the sanction. The plurality does not say the sanction cannot be used at all; it permits the sanction to be
The plurality‘s second criticism of the door-closing sanction—that it bestows a “windfall” on undeserving dеfendants—is even less persuasive. In numerous contexts, the law permits private litigants to come away with a “windfall” if doing so is the only or the most effective way of assuring that an important public interest is served. Statutes and common-law rules permitting plaintiffs to collect treble or punitive damages
But more fundamentally, the plurality‘s insistence on proportionality and concern with windfalls seem decidedly misplaced in this context. The plurality opinion fails to consider the practical fact that undoubtedly drove the Legislature to adopt the unusual and admittedly inexact remedy of denying access to court: the absence of any effective alternative remedies. The principal alternative, fines, is likely to have little deterrent value. The genius of the door-closing sanction is that it allows the State to rely on the threat of private litigants raising noncompliance as a defense to induce foreign corporations to comply, eliminating the need for expensive enforcement machinery designed to detect violations. Moreover, a foreign corporation engaged solely in interstate business by definition has no office, bank accounts or other assets in the forum state readily subject to attachment. This means that New Jersey authorities seeking to collect a judgment against a recalcitrant foreign corporation will have to undergo the expense of instituting legal proceedings in foreign jurisdictions.
The plurality‘s substitute remedy, of course, does not even include a provision for fines. The plurality‘s assertion that under its remedy “the state‘s interest in enforcing the Reporting Act is adequately served,” ante at 290, simply flies in the face of reality. In support of its approach, the plurality opinion quotes a law review note as stating that “this approach is not as effective as a permanent retroactive bar to the courts but is ‘preferred because it provides effective enforcement and yet is fair to the corporation.‘” Ante at 292 (quoting Note, “Sanctions for Failure to Comply with Corporation Qualification Statutes: An Evaluation,” 63 Colum.L.Rev. 117, 130 (1963)). That Note, however, goes on to recognize what the plurality does not, namely, that such an approach is incomplete unless
Under the Supreme Court‘s commerce clause balancing test, one important consideration is “whether alternative means could promote [the] local purpose as well without discriminating against interstate commerce.” Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S. Ct. 1727, 1736, 60 L. Ed. 2d 250, 262 (1979). The plurality has failed to take this consideration into account here. It is reasonably clear that no alternative means besides the door-closing sanction could as well serve the state interest in assuring compliance with the Reporting Act.
Finally, the plurality gives insufficient consideration to the important state interest advanced by the Reporting Act and the door-closing sanction: assuring that foreign corporations pay their fair share of taxes for income they derive from New Jersey residents. “[T]axes are the lifeblood of government, the vital force needed to sustain the public interest.” City of Philadelphia v. Austin, 86 N.J. 55, 65 (1981). “When one
In sum, the plurality‘s balancing analysis is unbalanced. It greatly exaggerates the “unfairness” of the “burden” imposed by the door-closing sanction on interstate commerce; ignores the unavailability of effective alternative sanctions; and neglects the undeniable importance of the state‘s interest in assuring that each taxpayer pays its fair share of taxes. In my view the plurality‘s crippling of the Reporting Act amounts to a needless overturning of a perfectly reasonable, and perfectly constitutional, legislative judgment.
III.
In a recent opinion, Justice Scalia warned of the hazards inherent in the judicial enterprise of determining, under the dormant commerce clause balancing test, whether a statute‘s local benefits are “outweighed” by its impact on interstate commerce. See CTS Corp. v. Dynamics Corp., 481 U.S. 69, 107 S. Ct. 1637, 1652, 95 L. Ed. 2d 67, 89 (1987) (Scalia, J., concurring). “[S]uch an inquiry,” Justice Scalia wrote, “is ill suited to the judicial function and should be undertaken rarely if at all.” Id. Today‘s decision provides sobering confirmation of Justice Scalia‘s thesis. Although I am not prepared to agree that balancing lacks any appropriate role in commerce clause adjudication, it is clear to me that, if and when done, balancing should be performed with far more care and with far more sensitivity to the Legislature‘s policy detеrminations than the plurality has exhibited here. “[A] court should not [invalidate state legislation under the dormant commerce clause] merely because it believes it to be in the public interest to determine policy where Congress has not.” Continental Trailways, Inc. v. Director, Div. of Motor Vehicles, 102 N.J. 526, 553 (1986)
HANDLER, J., dissenting.
First Family Mortgage Corporation of Florida (First Family) is a Florida corporation whose principal place of business is in Illinois. First Family has no offices, employees, salespersons, or representatives in New Jersey. It has neither received a certificate of authority to transact business in the State,
First Family invests in and services FHA and VA guaranteed mortgages and acts as a servicing custodian for the Government National Mortgage Association (GNMA) loans,
In January 1983, Durham defaulted on her mortgage. In July 1983, First Family moved in the Camden County Superiоr Court, Chancery Division, to foreclose. In May 1985, the trial court dismissed First Family‘s complaint because of First Family‘s failure to file a notice of business activities within the state.
The Corporation Business Activities Reporting Act is essentially an information gathering measure. Its clear purpose is to enable the Division of Taxation to obtain pertinent data from any foreign corporation which carries on an activity in the State but which has not obtained a certificate of authority to do business in New Jersey, to the end that a proper determination may be made as to whether such corporation is subject to any State tax. [Associates Consumer Discount Co. v. Bozzarello, 149 N.J.Super. 358, 362 (App.Div.1977).]
“This Notice requirement, coupled with appropriate sanctions, is designed to strengthen the enforcemеnt of the State‘s corporation tax laws.” 5 Report of the New Jersey Tax Policy Committee 34 (1972).
First Family admits the applicability to it of the Reporting Act but challenges the Act‘s constitutionality under the negative implications of the commerce clause of the federal constitution (the “dormant commerce clause“),
The plurality agrees with the Appellate Division that the Reporting Act, at least as modified, does not violate the commerce clause. The plurality reasons that since the reporting requirement is a minimal and reasonable requirement, it cannot be characterized as an unconstitutional burden on interstate commerce. The plurality‘s mistake is that it emphasizes the nature and severity of the Act‘s requirement rather than the nature and severity of the Act‘s sanctions. Its approach is contrary to the approach mandated by the United States Supreme Court in similar cаses. In its elaboration of the dormant commerce clause, the Supreme Court has developed the following doctrines: that 1) the ability to use state courts to enforce interstate transactions is an integral part of interstate commerce and, therefore, 2) states cannot close access to their courts to corporations acting solely within interstate commerce.
In Sioux Remedy Co. v. Cope, 235 U.S. 197, 35 S. Ct. 57, 59 L. Ed. 193 (1914), the Supreme Court invalidated under the commerce clause a South Dakota statute that closed its state courts to foreign corporations that did not file a copy of their charter, appoint an agent for service of process, and pay a filing fee. The Court first noted “that the right to demand and enforce payment for goods sold in interstate commerce, if not a part of such commerce, is so directly connected with it and is so essential to its existence and continuance that the imposition of unreasonable conditions upon this right must necessarily operate as a restraint or burden upon interstate commerce.” Id. at 202-03, 35 S. Ct. at 59, 59 L. Ed. at 197. The Court found the conditions to be unreasonable because they had no relation to
In Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S. Ct. 106, 66 L. Ed. 239 (1921), the Supreme Court invalidated under the commerce clause an application of a Kentucky statute to a contract-enforcement suit brought by a foreign corporation. The corporation had sought to enforce a transaction that was completely within interstate commerce.5 Kentucky‘s statute prescribed the conditions on which foreign corporations could do business in the state. Because the corporation had not complied with the statute, verdict was directed against it on its suit.
The Court concluded: “A corporation of one state may go into another, without obtaining the leave or license of the latter, for all the legitimate purposes of such commerce; and any statute of the latter state which obstructs or lays a burden on the exercise of this privilege is void under the commerce clause.” Id. at 291, 42 S. Ct. at 109, 66 L. Ed. at 244.
In Allenberg Cotton Co., Inc. v. Pittman, 419 U.S. 20, 95 S. Ct. 260, 42 L. Ed. 2d 195 (1974), the Supreme Court invalidated an application of a Mississippi statute that required foreign
The plurality‘s pоsition in today‘s case was explicitly rejected by the Supreme Court in Allenberg Cotton. The position that “the burden imposed on interstate commerce by such statutes is to be judged with reference to the measures required to comply with such legislation, and not the sanctions imposed for violation of it“, gained the support of only the one dissenting Justice. Allenberg Cotton, 419 U.S. at 42, 95 S. Ct. at 272, 42 L. Ed. 2d at 211 (Rehnquist, J., dissenting).
Allenberg Cotton and Sioux Remedy have been characterized as cases whose decisions were based on the states involved having barred foreign corporations from their state courts. Coons v. Honda Motor Co., 469 U.S. 1123, 1124, 105 S. Ct. 808, 83 L. Ed. 2d 800, 801 (1985) (Rehnquist, J., dissenting from the denial of certiorari). Justice Rehnquist noted that when states bar access to state courts, “out-of-state corporations which entered into contracts in-state [have] no forum in which to enforce these contracts, and out-of-state competition [is] effectively precluded.” 469 U.S. at 1125, 105 S. Ct. at 809, 83 L. Ed. 2d at 802.
The plurality in this case argues that the Reporting Act should be upheld because it merely facilitates the assessment and collection of taxes. However, this characterization could also be applied to the foreign corporation statutes struck down in the Supreme Court cases discussed earlier. See Allenberg Cotton, supra, 419 U.S. at 40 n. 6, 95 S. Ct. at 271 n. 6, 42 L. Ed. 2d at 210 n. 6 (Rehnquist, J., dissenting).
The plurality ignores the doctrine of unconstitutional conditions in asserting that because the reporting requirement is reasonable, it can be enforced even with the most severe of sanctions. “[I]t may be conceded that a state may restrict the right of [foreign] corporations to engage in business within its limits. But the power so to deal with these subjects, like all other state powers, can only be exerted within the limitations which the Constitution of the United States places upon state actions.” Sioux Remedy, 235 U.S. at 203, 35 S. Ct. at 59-60, 59 L. Ed. at 197 (citations omitted). The states are simply without power to put an undue burden on interstate commerce even to support an otherwise valid state objective. Cf. Philadelphia v. New Jersey, 437 U.S. 617, 626, 98 S. Ct. 2531, 2536, 57 L. Ed. 2d 475, 483 (1978) (“the evil of protectionism can reside in legislative means as well as legislative ends“).6 Barring access to state courts is such an “undue burden.”
The plurality‘s “judicial surgery” alters the Act to allow corporations who have not complied with the reporting requirement to sue in the state courts if it first files the delinquent required reports. Ante at 288-293. Admittedly this alteration makes the Act a less onerous burden on interstate commerce. However, this alteration does not make the Act constitutional. As altered, the Act still allows the State to bar access to its courts if the corporation does not file a report. This allowance cannot be given under the commerce clause. I believe the relevant Supreme Court decisions must be read to preclude states from either absolutely or conditionally closing their courts to corporations that are doing business only in interstate commerce.
For modification and affirmance—Justices POLLOCK, GARIBALDI and STEIN—3.
Opposed—Justices CLIFFORD and HANDLER—2.
Notes
A foreign corporation shall not be required to file a notice of business activities report if
a. by the end of an accounting period for which it was otherwise required to file a notice of business activities report under this act, it had received a certificate of authority to do business in this State; or
b. a timely return has been filed under the Corporation Business Tax Act or the Corporation Income Tax Act for such accounting period. [(footnotes omitted)]
Of special interest are Justice Douglas’ conclusion in Allenberg Cotton Co. v. Pittman, supra, 419 U.S. at 34, 95 S. Ct. at 267, 42 L. Ed. 2d at 206, that “Mississippi‘s refusal to honor and enforce contracts made for interstate or foreign commerce is repugnant to the Commerce Clause,” and Justice Rehnquist‘s statement in his dissenting opinion in that case, implicitly rejected by the majority, that “our decisions hold that the burden imposed on interstate commerce by [qualification] statutes is to be judged with reference to the measures required to comply with such legislation, and not to the sanctions imposed for violation of it,” id. at 42, 95 S. Ct. at 272, 42 L. Ed. 2d at 211. See note 1.This exception for timely filing a relevant corporate tax return underscores the basic purpose of the Reporting Act, which is to provide the Division of Taxation with information to determine the tax liability of foreign corporations. Associates Consumer Discount Co. v. Bozzarello, 149 N.J.Super. 358, 362 (App.Div.1977). Consistent with that purpose, the notice of business activities report form is issued by the Division of Taxation and is filed with that Division.
The plurality also criticizes the sanction for applying without regard to whether a foreign corporation is actually liable for any tax. The point is a negligible one. As the plurality itself notes, “the reporting requirement is carefully limited to those corporations that satisfy any of the conditions cited inall taxes, interest and civil penalties due the State for all periods have been paid, or provided for by adequate security or bond approved by the director, before the suit may proceed.
We find this argument unpersuasive because the effectiveness of the Reporting Act even as written depends upon this type of fortuity. Even under the concurring and dissenting opinion, a corporation will comply with the Reporting Act only if it concludes that the probable value of the causes of action it is likely to have in New Jersey courts exceeds the taxes that the corporation is likely to owe.